Basic Difference Between Invoice Financing vs Trust Receipt

Business owners and managers can be troubled by irregular cash flows and limited cash reserves. They can use alternative financing rather than equity or debt-based funding during such times. They can evaluate invoice financing vs trust receipt to figure out ways to plug the cash crunch.

Meaning of Invoice Financing

An invoice financing agreement allows your business to borrow money against overdue invoices from your customers. The receivables are then used as collateral for the invoice financing agreement. The business can exercise considerable control over its cash flow operations and working capital funds through this alternative. 

Considering those two aspects on track, the business's growth is deemed consistent. Since the financing company takes on the responsibility of following up on payments of unpaid invoices, the business can optimally utilise its resources on its regular operations.

Meaning of Trust Receipt

The trust receipt is an essential document when the buyer has a financing arrangement with the bank to buy goods or any other asset. The trust receipt indicates that while the business obtains possession of the goods or the asset, the bank holds the title of ownership to the asset in question until the business repays the advance.

If the buyer fails to repay the loan, the bank has every right to sell the assets to settle against the outstanding dues of the buyer.

A car dealer borrows funds under a trust receipt agreement to purchase automobiles from a manufacturer. When the dealer sells a car, the lender transfers the title to the dealer. Dealers transfer titles to buyers after selling cars and paying off their lenders.

Difference Between Invoice Financing vs Trust Receipt

Here are a few distinctions that can be made for invoice financing vs trust receipt-

Conclusion

Hence, invoice financing vs trust receipt needs thorough evaluation by businesses. Factors are based on the cost of financing, risks ready to be borne, and availability of collateral to pledge for funds. Invoice financing is always an attractive option and convenient for businesses, especially the startups.